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24 June, 04:50

An increase in the reserve requirement increases reserves and decreases the money supply.

a. true

b. false

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Answers (1)
  1. 24 June, 05:35
    0
    This is true. An increase in the reserve requirement is put in place to prevent inflation. This is what you call a contractionary policy or a restrictive monetary policy. When this happens, the amount of reserves increases and the money supply decreases because liquidity is reduced.
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